New contracting trend could mean loss of revenue for some firms

Tuesday - 4/24/2012, 7:22am EDT

Brian Friel, federal business intelligence analyst

Download mp3

The Department of Defense budget squeeze is putting the pressure on big contractors. A new report from Bloomberg Government says Booz Allen could lose one-fifth of its revenue because of a new trend in contracting. Now it has to compete with other contractors on projects it used to have in the bag.

Brian Friel, Bloomberg Government federal business intelligence analyst, wrote the report and shared with the Federal Drive with Tom Temin and Emily Kopp news about how the trend could affect all contractors. Listen to the interview by clicking the link above.

Report Executive Summary:
(Written by Brian Friel)

This Bloomberg Government Study examines the Defense Department's Information Analysis Centers, or IACs, a 60-year-old research program that is being overhauled to include more companies. The change is part of a government-wide move to multiple-award contracts, or MACs, due to a push by Congress to inject more competition into federal procurement. As singleaward task-order contracts valued at more than $100 million expire, federal agencies are replacing them with MACs.

Brian Friel, federal business intelligence analyst, Bloomberg Government (BGov)

The transformation of the funding mechanism for IACs from single-award to multiple-award contracts threatens the federal revenue of companies that have held the lucrative single-award deals. Defense Department buyers traditionally have been able to place sole-source research orders with the seven contractors that each run one or more of the 10 Information Analysis Centers.1 Under the revised program, Booz Allen Hamilton Holding Corp., Alion Science and Technology Corp., and other companies and universities will be forced to compete for orders for research and development in cybersecurity, medical advances, biometrics, weapons enhancements and alternative energy.

Before the transition to multiple-award contracts, Alion held contracts for three of the centers, Booz held two and one each went to Wyle Laboratories, Quanterion Solutions, Battelle Memorial Institute, Johns Hopkins University and the Georgia Institute of Technology.

These IAC contractors had exclusive access to $1 billion to $2 billion in total annual orders through the 10 centers.2 The 2008 National Defense Authorization Act required that all contracts worth $100 million or more be issued competitively using the multiple-award contract system, rather than single-award contracts.3

The 10 IACs' structure is being reorganized into multiple-award contracts for research in three broad categories: cybersecurity and warfare, homeland security, and defense systems. Nine companies already have been selected for the cybersecurity multiple-award contract. Six or more companies and universities will be selected for each of the other two contracts over the next two years.4 The companies on each multiple-award contract will then compete to perform research projects for Defense and other government agencies.

Many agencies' MACs and single-award contracts can be used by buyers from other federal agencies to place task orders. Under the expiring IAC single-award contract structure, buyers from throughout the Defense Department have placed billions of dollars in orders with the companies that hold the contracts. IAC contractors face a risk that the new MAC structure will not appeal to government purchasers that prefer using singleaward contracts.

The IAC transition amounts to a $2 billion test of Congress's decision to shift away from longstanding sole-source task-order contracts to MACs. By 2014, when all the singleaward IACs end, spending levels on the MACs will demonstrate whether the shift to competitive contracts has lowered prices and improved service enough to attract buyers, or has driven them to seek single-award deals elsewhere.

This study is the latest in a series of Bloomberg Government analyses examining multiple-award contracts in the federal market. The first, "Big MACs: The Rapid Growth of Multiple-Award Contracts," published on Dec. 15, 5 examined the rising use of MACs throughout the government from fiscal 2006 to fiscal 2010. The second, "Big MACs in 2011: Continued Growth, Tougher Competition," published on March 27, 6 explored MAC trends in fiscal 2011.

(Read the full Bloomberg Government study, "Big MACs: Funding for Information Analysis Centers Transformed. BGov.com is a paid site and requires a subscription for access.)